Sunday, February 06, 2005

How many is too many ?

One question that I get asked often is about the optimal/maximum number of unique stocks to own.

I have seen money managers referring to 20, 400 and everything in between as desirable!

Frankly, I believe that any hard limit is artificial. If you can get a stock at a reasonable price, you should own it (assuming of course you can afford to). i.e any limit should not be based on what you already own, but by the availability of the target companies' shares cheaply.

Ofcourse, when you own hundreds or even thousands of stocks, some will go down under. Who could have predicted Enron or Worldcom, 5 years ago ?

In addition, the exchange where a stock is listed does tell you something about the risk involved given the different disclosure requirements by the exchanges.

Ultra-low fees online brokerages like ShareBuilder and FolioFN help you lower the costs of transactions, thus taking one item off of your cost-basis calculations.